Cost per Mile $2.00 $1.50 MC $1.00 -MC' $0.50 D-MB 0 50 100 140 Miles per Week The Effects of Moral Hazard
The Effects of Moral Hazard
Moral hazard alters the ability of markets to allocate resources efficiently.D gives the demand for automobile driving.With no moral hazard,the marginal cost of transportation MC is $1.50 per mile,the driver drives 100 miles, Which is the efficient amount.With moral hazard,the driver perceives the cost per mile to be MC'=$1.00 and drives 140 miles
Moral hazard alters the ability of markets to allocate resources efficiently. D gives the demand for automobile driving. With no moral hazard, the marginal cost of transportation MC is $1.50 per mile; the driver drives 100 miles, Which is the efficient amount. With moral hazard, the driver perceives the cost per mile to be MC' = $1.00 and drives 140 miles